Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis together with our audited consolidated financial statements and the accompanying notes. This discussion contains forward-looking statements, including statements regarding our expected financial position, business and financing plans. These statements involve risks and uncertainties. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Report, particularly under the headings "Cautionary Statement Concerning Forward-Looking Statements" and "Risk Factors."

Unless otherwise stated, all dollar amounts are in thousands.

Overview

Mtron is engaged in the designing, manufacturing and marketing of highly-engineered, high reliability frequency and spectrum control products used to control the frequency or timing of signals in electronic circuits in various applications. Mtron's primary markets are aerospace and defense, space, and avionics.

The accompanying consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries.

For a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 27, 2025, which is available free of charge on the SEC's website at https://www.sec.gov and on our website at ir.mtron.com.

Trends and Uncertainties

We are not aware of any material trends or uncertainties, other than the global economic conditions affecting our industry generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on our revenues or income other than those listed in Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K.

Results of Operations

The following table presents our Consolidated Statements of Operations for the periods indicated:

		Year Ended December 31,
(in thousands)		2025				2024				$ Change				% Change
Revenues		$	54,417			$	49,012			$	5,405				11.0	%
Costs and expenses:
Manufacturing cost of sales			30,269				26,372				3,897				14.8	%
Engineering, selling and administrative			13,857				13,246				611				4.6	%
Total costs and expenses			44,126				39,618				4,508				11.4	%
Operating income			10,291				9,394				897				9.5	%
Other income:
Interest income, net			539				243				296				121.8	%
Other income, net			124				138				(14	)			-10.1	%
Total other income, net			663				381				282				74.0	%
Income before income taxes			10,954				9,775				1,179				12.1	%
Income tax expense			2,507				2,139				368				17.2	%
Net income		$	8,447			$	7,636			$	811				10.6	%

2025 compared to 2024

Total Revenues

Total revenues increased $5,405, or 11.0%, from $49,012 in 2024 to $54,417 in 2025 primarily due to strong defense program product and solution shipments, as well as an increase in shipments in the avionics and industrials sectors.

Total Costs and Expenses

Total costs and expenses increased $4,508, or 11.4%, from $39,618 in 2024 to $44,126 in 2025 primarily due to:

•

a $3,897, or 14.8%, increase in Manufacturing cost of sales from $26,372 in 2024 to $30,269 in 2025 driven by the increase in production of several new products, which result in higher initial manufacturing costs, as well as the impact of tariffs; and

•

a $611, or 4.6%, increase in Engineering, selling and administrative from $13,246 in 2024 to $13,857 in 2025 driven by continued investment in research and development; higher sales commissions consistent with the growth in revenues; higher stock-based compensation; higher sales and marketing costs; and an increase in administrative and corporate expenses consistent with the overall growth in the business.

The Company's total costs and expenses for 2024 included bonus expense of approximately $1.5 million, or 3.0% of revenues, which was not incurred in 2025.

Gross Margin

Gross margin (Revenues less Manufacturing cost of sales as a percentage of Revenues) decreased 180 basis points from 46.2% in 2024 to 44.4% in 2025 reflecting product mix and higher tariff-related costs.

Total Other Income, Net

Total other income, net increased $282, or 74.0%, from $381 in 2024 to $663 in 2025 primarily due to a $296 increase in Interest income, net from $243 in 2024 to $539 in 2025 driven by higher average balances invested in money market mutual funds.

Income Tax Expense

Backlog

As of December 31, 2025, our order backlog was $76,425, an increase of $29,186, or 61.8%, from $47,239 as of December 31, 2024. The increase in backlog from December 31, 2024 reflects the nature of a program centric business model, which can materially affect backlog based on the timing and size of these orders.

The backlog of unfilled orders includes amounts based on signed contracts and purchase orders, which are likely to be fulfilled substantially within the next 12 to 24 months. Order backlog is adjusted quarterly to reflect project cancellations, deferrals, revised project scope and cost. We expect to fill the vast majority of our order backlog as of December 31, 2025 during 2026 and 2027, but cannot provide assurances as to what portion of the order backlog will be fulfilled in any given year.

Non-GAAP Financial Measures

To supplement our Consolidated Financial Statements presented on a U.S. GAAP basis, the Company presents its financial condition and results of operations in the way it believes will be most meaningful and representative of its business results. Some of the measurements the Company uses are "Non-GAAP financial measures" under SEC rules and regulations. The non-GAAP financial measures the Company presents are listed below and may not be comparable to similarly-named measures reported by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or diluted earnings per share prepared in accordance with U.S. GAAP.

The Company uses the following operating performance measure because the Company believes it provides both management and investors with a more complete understanding of the underlying operational results and trends and our marketplace performance as well as a more accurate view of the Company's ability to generate profits:

Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA") is derived by excluding the items set forth below from Income before income taxes. Excluded items include the following:

•

Interest income

•

Interest expense

•

Depreciation

•

Amortization

•

Non-cash stock-based compensation

•

Other discrete items that might have a significant impact on comparable GAAP measures and could distort the evaluation of our normal operating performance.

Reconciliation of GAAP Income Before Income Taxes to EBITDA and Non-GAAP Adjusted EBITDA

The following table presents a reconciliation of income before income taxes to Adjusted EBITDA, a non-GAAP measure:

		Three Months Ended December 31,								Year Ended December 31,
(in thousands, except share data)		2025				2024				2025				2024
Income before income taxes		$	4,082			$	2,758			$	10,954			$	9,775
Adjustments:
Interest income, net			(161	)			(104	)			(539	)			(243	)
Depreciation			286				251				1,086				968
Amortization			-				-				-				5
Total adjustments			125				147				547				730
EBITDA			4,207				2,905				11,501				10,505
Non-cash stock compensation			278				151				1,081				636
Adjusted EBITDA		$	4,485			$	3,056			$	12,582			$	11,141

Three months ended December 31, 2025 compared to three months ended December 31, 2024

Adjusted EBITDA increased $1,429 from $3,056 for the three months ended December 31, 2024 to $4,485 for the three months ended December 31, 2025. The increase was primarily due to higher revenues and lower engineering, selling and administrative expenses partially offset by lower gross margin discussed above.

Year ended 2025 compared to Year ended 2024

Adjusted EBITDA increased $1,441 from $11,141 in 2024 to $12,582 in 2025. The increase was primarily due to higher revenues discussed above, continued operating leverage, and lower incentive compensation partially offset by lower gross margin discussed above. Adjusted EBITDA in 2024 included bonus expense of approximately 3.0% of revenues, which was not incurred in 2025.

Liquidity and Capital Resources

Overview

Liquidity refers to our ability to access sufficient sources of cash to meet the requirements of our operating, investing and financing activities.

Capital refers to our long-term financial resources available to support business operations and future growth.

Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the business, timing of cash flows, general economic conditions and access to the capital markets and the other sources of liquidity and capital described herein.

As of December 31, 2025 and 2024, Cash and cash equivalents were $20,891 and $12,641, respectively.

Cash Flow Activity

The following table presents the cash flow activity for the period indicated:

		As of December 31,
(in thousands)		2025				2024
Cash and cash equivalents, beginning of year		$	12,641			$	3,913
Cash provided by operating activities			10,659				7,521
Cash used in investing activities			(2,551	)			(1,898	)
Cash provided by financing activities			142				3,105
Net change in cash and cash equivalents			8,250				8,728
Cash and cash equivalents, end of year		$	20,891			$	12,641

Operating Activities

Cash provided by operating activities was $10,659 in 2025 compared to $7,521 in 2024, an increase of $3,138 primarily due to the following:

•

Higher net income;

•

Higher non-cash adjustments, including:

◦

Stock-based compensation expense, which increased $445 from $636 in 2024 to $1,081 in 2025;

◦

Deferred income tax provision, which decreased $1,268 from $212 in 2024 to $1,480 in 2025;

•

Working capital movements, including:

◦

Accounts receivable, which decreased $186 in 2025 compared to an increase of $2,040 in 2024, reflecting shorter customer payment cycles;

◦

Inventories, net, which increased $164 in 2025 compared to $625 in 2024;

◦

Prepaid expenses and other assets, which increased $1,156 in 2025 compared to $165 in 2024, primarily due to higher income taxes receivable; and

◦

Accounts payable, accrued compensation and other expenses, and other liabilities, which increased $328 in 2025 compared to $889 in 2024, primarily due to the timing of goods received and services performed prior to period end and reflects normal fluctuations in operating activity.

Our working capital metrics were as follows:

		As of December 31,
(in thousands)		2025				2024
Current assets		$	61,217			$	29,752
Less: Current liabilities			4,891				5,216
Working capital		$	56,326			$	24,536
Current ratio			12.5				5.7

Management continues to focus on efficiently managing working capital requirements to match operating activity levels and will seek to deploy the Company's working capital where it will generate the greatest returns.

Investing Activities

Cash used in investing activities was $2,551 in 2025 compared to $1,898 in 2024, an increase of $653 primarily due to the purchase of equipment to support growth and next generation product development.

Financing Activities

Cash provided by financing activities was $142 in 2025 compared to $3,105 in 2024, a decrease of $2,963 primarily due to lower exercises of stock options awarded in December 2023.

Capital Resources

We believe that existing cash and cash equivalents, marketable securities and cash generated from operations will provide sufficient liquidity to meet our ongoing working capital and capital expenditure requirements for the next 12 months from the date of this filing and for the foreseeable future. The Company's management continues to strive for profitability both internally and through acquisition.

Our Board has adhered to a practice of not paying cash dividends. This policy takes into account our long-term growth objectives, including our anticipated investments for organic growth, potential acquisitions or other strategic ventures and stockholders' desire for capital appreciation of their holdings. No cash dividends are expected to be paid for the foreseeable future.

Contractual Obligations

The following table summarizes contractual obligations, in total, and by remaining maturity:

						Payments due by Period
(in thousands)		Total Payments				2026				2027				2028				2029				2030
Leases		$	256			$	74			$	74			$	48			$	48			$	12
Revolving credit facility			-				-				-				-				-				-
Delayed draw facility			-				-				-				-				-				-
Total		$	256			$	74			$	74			$	48			$	48			$	12

Leases

Leases represent the future minimum lease payments under our operating leases. We believe that we maintain adequate financial resources to meet the actual required payments under these obligations.

Revolving Credit Facility and Delayed Draw Facility

On December 31, 2025, we entered into an amended and restated credit agreement (the "Credit Agreement") with Fifth Third Bank, National Association ("Fifth Third Bank"), replacing our prior credit facility with Fifth Third Bank (the "Previous Credit Agreement"). The Credit Agreement provides for a $10.0 million revolving credit facility (the "Revolving Facility") and a $10.0 million delayed draw term loan facility (the "Delayed Draw Facility"). Borrowings under the Revolving Facility and the Delayed Draw Facility bear interest at a rate based on the Secured Overnight Financing Rate ("SOFR") plus a margin ranging from 2.00% to 3.00%, determined by the Company's leverage ratio, with a SOFR floor of 0.00%. The Company will pay a fee on the average unused daily amount of the facilities at a rate ranging from 0.20% and 0.30%, determined by the Company's leverage ratio. Amounts outstanding under the Revolving Facility are due at maturity on December 31, 2028, and advances under the Delayed Draw Facility are available for a period of 36 months from the date of the Credit Agreement, with each advance maturing 36 months after funding and subject to quarterly amortization requirements. The Credit Agreement contains various affirmative and negative covenants that are customary for transactions of this type, including limitations on the incurrence of debt and liabilities, as well as financial reporting requirements. The Credit Agreement also imposes certain financial covenants based on the following criteria: (a) Leverage Ratio and (b) Fixed Charge Coverage Ratio (each as defined in the Credit Agreement). All loans pursuant to the Credit Agreement are secured by a first-priority lien on substantially all of the personal property of the Company. See Note 7 - Revolving Credit Agreement to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Report for details of the Credit Agreement.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). Our significant accounting policies are more fully described in Note 2 - Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Report. Certain accounting policies require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions, and the effects of revisions are reflected in the financial statements in the period in which they are determined to be necessary. The accounting policies described below are those that most frequently require us to make estimates and judgments and, therefore, are critical to understanding our results of operations.

Income Taxes

We account for income taxes in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 740, Income Taxes ("ASC 740"), which requires an asset and liability approach for the financial accounting and reporting of income taxes. Under this method, deferred income taxes are recognized for the expected future tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These balances are measured using the enacted tax rates expected to apply in the year(s) in which these temporary differences are expected to reverse. The effect of a change in tax rates on deferred income taxes is recognized in income in the period when the change is enacted.

Based on consideration of all available evidence regarding their utilization, we record net deferred tax assets to the extent that it is more likely than not that they will be realized. Where, based on the weight of all available evidence, it is more likely than not that some amount of a deferred tax asset will not be realized, we establish a valuation allowance for the amount that, in our judgment, is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized. In reaching such conclusions, we consider available positive and negative evidence including past operating results, projections of future taxable income, the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards. Our projections of future taxable income include estimates and assumptions regarding our income and costs, as well as the timing and amount of reversals of taxable temporary differences.

The Company follows a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and for which actual outcomes may differ from forecasted outcomes. The Company's policy is to include interest and penalties related to uncertain tax positions in income tax expense.

Inventories

We account for inventories at the lower of cost or net realizable value using the FIFO (first-in, first-out) method.

Inventory reserves are determined based on estimated losses that result from inventory that becomes obsolete or for which the Company has excess inventory levels. In determining these estimates, the Company performs an analysis on current demand and usage for each inventory item over historical time periods. Based on that analysis, the Company reserves a percentage of the inventory amount within each time period based on historical demand and usage patterns of specific items in inventory. Actual experience could differ from the amounts estimated requiring adjustments to inventory valuation in future periods.

Recently Issued Accounting Pronouncements

For additional information on recently issued account pronouncements, refer to Note 2 - Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements.